Japan’s labor crunch leads to tightest job market in 40 years

Job availability rose to its highest level in 44 years in 2017, the central government said Tuesday, the latest sign that labor is in increasingly short supply as Japan enjoys a phase of modest economic growth.

The jobs-to-applicants ratio improved to 1.50 in 2017, the highest since 1973 when it hit an all-time high of 1.76. This means that 150 positions were available for every 100 job seekers.

The unemployment rate, meanwhile, fell for the seventh straight year to 2.8 percent, the lowest since 1993, government data showed.

The economy, which grew at an annualized rate of 2.5 percent in July-September, is considered to be in its second-longest expansion cycle in the postwar era, helped by strong overseas demand.

The jobless rate stayed below 3 percent for much of 2017, but labor shortages have yet to translate into more robust wage growth, a headache for policymakers as the Bank of Japan is still far from hitting its 2 percent inflation target.

Women’s workforce participation rates have been on the increase, while companies have also been encouraging elderly people to return to the workforce.

The number of women on payrolls hit a record 28.6 million in 2017, pushing down the female jobless rate to a 24-year low of 2.7 percent, from 2.8 percent in 2016. Male unemployment came to 3.0 percent, down from 3.3 percent.

For December alone, job availability rose to 1.59, above the yearly figure and up for the third straight month, hitting its highest level in 44 years, but unemployment rose to 2.8 percent from 2.7 percent in November, worsening for the first time in seven months, according to the Health, Labor and Welfare Ministry and the Internal Affairs and Communications Ministry.

“The situation may be different depending on the sector and between regular and part-time workers, but it’s evident that labor shortages are severe as the economy has been expanding,” said Yuichiro Nagai, an economist at Barclays Securities Japan Ltd.

“The working population saw strong growth earlier but such growth appears to be more or less flat in recent months,” Nagai said.

Under such circumstances, small and medium-size companies will likely offer better pay to secure workers, he added.

Despite improving labor market conditions, household spending lacked strength. The key indicator of monthly private consumption slipped 0.1 percent from a year ago to ¥322,157, marking the first fall in three months.

Rising fresh food prices apparently dented consumer sentiment in December, although an internal ministry official said there is no change to the view that “consumption is recovering as a trend.”

The spending figure came after the government earlier in January lifted its monthly assessment on private consumption, which accounts for nearly 60 percent of the country’s gross domestic product, for the first time in seven months.

Prime Minister Shinzo Abe is now asking companies to raise pay by 3 percent during this year’s wage negotiations between management and labor unions in his latest effort to jolt the economy out of deflation.

The average monthly income of salaried households with two or more people marked a 0.4 percent year-on-year gain, up for the seventh straight month to ¥940,875. Many workers receive winter bonuses at this time of year.

Chief Cabinet Secretary Yoshihide Suga said the government will accelerate efforts to improve labor market conditions that directly affect the lives of ordinary people under the Abenomics policy mix.

“We also aim to promote labor reform to curb long working hours and realize equal pay for equal work,” Suga said at a press briefing.

Companies are reluctant to hike wages partly because of uncertainty over their economic outlook and some apparently prefer raising pay for part-timers to secure labor rather than for regular workers, according to a recent government analysis.